Mobile Money in the Americas: Regulation, Infrastructure and Business Models

This is conference week for me! Today I’m sitting at Mobile Money Americas in Mexico City, with a fascinating group of people working on mobile wallets in countries throughout the region.

Of the 129 live mobile money projects worldwide (and let’s not get distracted, right now, by defining that…), 17 are live in the LAC region, with many more planned or in pilots. There is a tremendous attitude of optimism here, and what appears to be a shared belief that these systems can, with proper regulatory support, provide real social good – helping in particular unbanked consumers to get access to ways of keeping, saving, and moving money securely.

There’s been lots of discussion about the factors that encourage success or create barriers to success on these projects – and many presentations showing “lessons learned” from the experience of African countries – which, in general, have more/longer established mobile money projects than their LAC counterparts. Some of the issues being discussed include:

Agent networks. What models work: direct models (controlled by the MFSP – mobile financial services provider), shared models, third party network models, models using the card network ISO approach. Interesting questions about how to support the liquidity requirements of agents, as well as the physical questions of supporting the cash in/cash out currency requirements of the agents.

Regulatory models. Huge discussions and debates around how to let this market evolve while appropriately protecting consumers. In general, LAC countries have had a more bank-centric regulatory model than have many African countries. In some countries in Africa, MNO’s and their partners have been allowed to open mobile money wallets and other services, without being subject, for example, to the same account opening regulations that banks are. In LAC, many of the regulators are taking a “if it quacks like a duck” approach, and requiring the involvement of banks (and their regulators) for the storage and movement of money. Bank of Mexico (the central bank), as an example, requires that only banks or their agents open accounts that store and move money. (So an MNO can have a prepaid airtime card for their consumer, but couldn’t, on their own, open a mobile money account – nor could they allow the airtime minutes to be used for the purchase of goods or services.) But to encourage the growth of mobile money (Mexico has apparently about 90 million mobile subscribers and only about 30 million bank account holders), the Bank of Mexico has authored new regulation that allows registered bank agents (for example, a retail store) to accept deposits. It has also, importantly, introduced tiered levels of KYC requirements, to allow low value accounts to be opened with lighter weight regulation.

Additional services. Most of the mobile money initiatives have been started as mechanisms for cash deposit and P2P transfers. In some countries, these are expanding to incorporate micro-loans, micro-insurance, and micro-savings products.

I’m particularly interested in the spread of these services to allow mobile wallet users to pay for goods and services at the point of sale. There are vendors here (such as Verifone, with an “mWallet MFS POS Gateway product) that are talking about providing both small merchants (who may be mobile money agents who are also selling other goods and services) with the ability to accept mobile money transfers as a method of payment. They are also helping existing card accepting merchants to accept the new forms of mobile payment.

Accomplishing this, of course, requires not only the physical interconnection and gateway-ing, but also in some systems changes to rules and pricing for the mobile wallets. In many countries, for example, a consumer pays a “cash in” fee to the agent when depositing money – it is highly unlikely that the same consumer would pay the same fee for the privilege of buying a loaf of bread.One of the intriguing aspects of this is that it is the opposite of what we are facing the developing world – where we are trying to see if there are reasons for consumers and merchants to move from a well-functioning card-based POS environment to a mobile-based one.

Business models. Lots of talk, and acknowledgement, of the fact that everyone needs some form of return, or reason to participate in mobile money. But I am continually amazed at the over-simplification of “other people’s” business models – you will hear someone say “all banks want….” or “merchants just want….” or “the mobile carriers want….”, followed by a one-sentence description of their complete business model, in the speaker’s view. The truth, IMHO, is that business motivations – and models – are often much more complex than this – and that a failure to understand these on a deeper level is often the problem with multi-party new product adoption. (By the way, this rant is not specific to this conference – but to conversations about mobile payments in general!)

Altogether a worthwhile conference so far. The focus on regulation, infrastructure, and business models here is also a nice complement to the recent IMFTI (Institute for Money, Technology and Financial Inclusion) conference that I attended, where we heard a lot about the behavioral and cultural factors that drive – or inhibit – the adoption of mobile money services in the developing world. And as one rep from U.S. AID here said, it’s heartening to see that sometimes there are innovations in the developing world that may lead to similar initiatives in the developed world.